Business Plan Template

CSD Course, Fall 2008. Open Case Team Presents. KTH, Stockholm.

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This podcast is about a template to write business plan to start-up a company based on PC-Based Open Source Networking idea in any of the African countries

As we enjoy great advantages from the inventions of others, we should be glad of an opportunity to serve others by any invention of ours; and this we should do freely and generously. Benjamin Franklin

DETAILED EXPLANATION OF DOCUMENT
This Business Plan Template is made for a proposed company, which does not exist now,
by using the business plan from OpCon1 team and the additional work of OSN team2.
The aim of doing this is that any institution or person, who is interested in starting up a
PC-based open source networking business, could take this “Business Plan” as a
template to start with. Most of the parts in this template have been created from the
OpCon team’s business plan. But the most important difference between OpCon’s
business plan3 and this template is that; any one can use this template and create their
own business plans for any of the African countries, not only for Malawi and
Mozambique The figure above shows the whole picture of the template. The hint here in this
template is that you need to care not only each item in these steps but also the
alignment between each step. In a word, you should consider the whole picture of this
template while taking it as the guideline of your own business.

In addition to these, keep in your mind the characteristics of a promising business plan:
Meets a customer need – a problem is solved
Innovative
Unique
Clear focus
Offers long-term profitability.

Writing business plan is so important, because once you started a company there will
not be so much time to think and plan about the organizational and business structure
of your company. That’s why writing a business plan is important at the beginning
because it will give you a formation when you start operations. If the market conditions
change you must also change your business plan, so keep in mind that “the plan is
important but the planning is crucial”.
As it has been described by Keri E. Pearlson and Carol S. Saunders at their book
“Managing & Using Information Systems”, Information Strategy and Organizational
Strategy of your company must be supporting your Business Strategy. Also, pay
attention to the alignments of these there corners for the success of your company.

1. ACKNOWLEDGEMENTS
Please fill this part about the people who have helped you during the preparations and
pre market researches. Also you can write about what you think about the future of this
idea, why do you do that and so on.

2. EXECUTIVE SUMMARY
Proposed company is going to be a provider of networking solutions based on the PCBased
Open Source networking project with professional documentation, customer
support, pre-sales and after-sales services. The company will sell these solutions to the
possible customers, institutions and organizations that have a need to either expand
their existing or build new networks. In addition to the actual router equipment, the
company will sell Technical Support, Certification Training Courses and Consultancy
Services such as network design and implementation. Most of the company’s revenue
will come from these services for which customers will subscribe on a yearly or three
years basis.
As the internet usage increase, institutions and companies will see a need to improve
and expand their internal networks and this will in turn mean more need for more
routing equipment to carter for the expansions. Secondly, Internet usage in Africa is still
low but has been growing and will continue to grow exponentially for several years. As
the infrastructure improves, more and more users will come on line and this means that
the ISPs in these countries will have to expand their operation which again translates
into more demand for routing equipment and the services around this solution.
Your nearest competitors Vyatta [10], who are offering a very similar solution, have not
yet penetrated the African market. This means that you can take advantage of this
factor to capture a substantial share of the market and be able to establish yourselves in
this marketplace. It also means you will have sustainable competitive advantage over
your competitors.
As a start up, company does not have to employ many people but on the other hand,
without an experienced, well-organized team, it is difficult to get found from investors.
That’s why we suggest that, the company’s management team must be strengthened
during the time. Each one of the management team members must be recruited on
merit, including formal qualifications and relevant experience.
The company must also have a board of directors who will guide the management team
in various aspects. Members of the board must be recruited based on their competence,
experience in the respective relevant fields and stature in society.

3. COMPANY SUMMARY
The company will be a network solution provider which will focus on introducing an
open source pc based router known as Bifrost/OSiAN  and other complementary
services.
Since the poverty level in Africa has been increasing this has made ICT to be an
alternative to solve this problem facing the content by being an enabler. Most of the
governments in Africa have stated in their ICT policies that ICT is an enabler and the tool
to fight poverty.
This being said the price of software, hardware or networking equipment seems to be
quiet unreasonably high to those who are taking or considering ICT to be a better
alternative.
This is where your company recognizes that open source is a much better alternative in
terms of being cost effective and in terms of broadening knowledge and experience. As
a result, you can introduce the open source pc based networking solution which will
solve the problem of cost issues among other things such as flexibility and ease of use in
those countries.
Your company will be selling an open source networking solution with the
complementary services that is described thoroughly in the next section.
What make your company different from existing competitors like Cisco and Huawei
are?
The solution is much more cost effective. Bifrost high end router for instance is 5
times cheaper than the Cisco equivalent (Cisco 7206 VXR) high end routers. (for
more information please look at appendix A)
The Solution is more flexible. Users will have the freedom to integrate applications
of their choice and make it customizable to their own needs which is not possible in
proprietary solutions.
Since it is open source it will highly contribute to the broadening of knowledge of
the users since it will allow them to customize and add modules, which will help them
expand their view.

4. PRODUCTS AND SERVICES
4.1 PRODUCT
Bifrost/OSiAN, the open source pc based router/firewall system will be the core product
of your company.
Bifrost/OSiAN is a Linux distribution which is highly optimized for routing and which runs
from a USB Stick. It was first developed ten years ago in the Swedish University of
Agricultural Sciences5 in Uppsala, Sweden, and is now widely used by more than 30 000
students both in Uppsala University and in the medical school of Stockholm (Karolinska
Institute), Sweden. Bifrost is specially aimed to be used on top of Intel network cards, as
optimized Intel drivers have been developed for gigabit cards.
Bifrost/OSiAN has proved to perform as well as the other proprietary solutions such as
Cisco (more on the performance comparison on the technical appendix).
The core advantage of Bifrost/OSiAN is that, it is very much cost effective as mentioned
above and it is customizable up to the user’s needs. This means that, the user can add
any modules to the system and customize the product which is not the case with
proprietary solutions.
Bifrost also comes with a GUI called OSiAN  which allows low to average experience
Linux users to easily set up and operate the network. This will add user friendliness and
ease of use to Bifrost.

4.1 SERVICES
Please fill this part by your Whole Product concept (consider who delivers portions of
whole product, product design, brand value, time to market, etc.)

4.1.1 TRAINING AND CERTIFICATION
Company can provide different levels of training which will be given in cooperation with
universities, local training agencies or any other possible partners. By the completion of
the training, company can also provide certificates to create experienced professionals
in the targeted markets.
The company, in collaboration with training partners will be giving basic and advanced
level of training. The training will be targeted to system administrators who have prior
knowledge, IT students and others who have interest in open source networking.
The basic training will be for beginners who have low experience in networking. This will
take a month to accomplish. The advanced level is for those who have experience with
Cisco Juniper or other systems. For these it can take an intensive 3-5 days training.
The training materials would include videos, flash clips, presentation slides and technical
documentation. The training can be given in the universities or other training agencies.

When the training is carried out well and the product takes off, company can go further
to give certifications. The certification must mainly focuses on the target markets. For
instance, in the beginning, National Research and Education Networks in Africa can be a
good start point.

4.1.2 SUPPORT
Technical support is also among the complementary services. The customer must be
provided with both online and offline support on request.
Technical support should be available whenever customers or partners encounter
technical problems associated with your routers. This support would be offered over the
Internet and by phone depending on the customer’s subscription.
4.1.3 UPDATES AND REPAIRS
Any updates and repairs are also among the value added services that the company is
going to provide. Like any other software product, Bifrost/OSiAN will need updates from
time to time. These updates are necessary for improvements and enhancements.
Customers who need help to carry out these updates should be able to access such help
easily.

4.1.4 CONSULTANCY
Company must also be providing advanced professional services, including
implementation planning, network architecture and design, upgrade or network
migration planning, interoperability testing, network integration, etc.
4.1.5 DOCUMENTATION
The company must be providing manuals and other documentation which will be helpful
for the user.

5. MARKET ASSESSMENT
5.1 INDUSTRY OVERVIEW
The networking industry has been led by Cisco and Juniper respectively for the
past few decades with a market share of 60% and 30% in core routers.
These two giants have been involved from small and home office (SoHo) markets to big
companies, from NGOs to government offices and educational institutes throughout the
world.
Both provide network equipment such as routers, cable modems and switches among
other products. In addition to their core products they provide their customers with
technical support services, updates, and training and certification programs.
Huawei is also another player in the market which started operating in the late 80s. This
Chinese networking and telecommunications equipment supplier has been providing
routers and other LAN equipment.
All the above players have also a great impact in the African Market. They have
established a strong customer base and achieved customer loyalty throughout the
continent.
The above three are all proprietary solutions, however, since 2006 Vyatta a new
open-source networking solutions provider has joined the market. This Company
provides commercially supported, open-source router and firewall solutions. Currently
Vyatta is operating in US and Australia. This is a good timing for you to establish
yourselves in the African continent and gain some market share. But, to be able to do
that you need professional customer support, documentation and an established user
community around your solution.

5.2 TARGET MARKETS AND POSITIONING
Please fill this part by your first and second target markets. Target Customer (what
specific customers will you serve?) (What segments will you target?). For example you
can use Fig. 8 Example Bowling Alley Model (at page 34) to decide the target markets.
As Professor Tom Byers, from Stanford University, says; “Positioning forces a high-tech
entrepreneur to clearly identify what the product or service is, who the customers are,
what benefit it delivers, and how it differs from the competition. Successful positioning
requires understanding the technology adoption life cycle made famous in Crossing the
Chasm by Moore and the development and nurturing of true value-added partnerships.”

5.3 MARKET DEMAND
Please fill this part about your target market’s demands. Give some information about
your target customer’s problem and describe how you are going to solve the customer’s
pain. Another important point is to keep in mind that, compelling reason to buy
(remember it varies by stage of TALC). Once you clearly define this reason and provide
them a good solution, it will be easier for you to dominate your target market segments.
Also keep in mind that, fighting poverty in Africa has been the main focus in the
governments’ goal towards achieving growth and sustainability. Thus a cost effective
alternative is always a plus.
5.4 MARKET SIZE
Please fill this part about your total available market and total addressable market size
by numbers.

5.5 MARKET GROWTH
Please fill this part by the growth information of your target market. You can put a graph
which show the last 3-5 years market size or development rate for your target market
segment.

5.6 CHANNELS ANALYSIS
For this part you can use Porter’s five forces model to see the channels dynamics. Referring to the Figure 4, there are five main forces those can affect the industry in
general and consequently your business in Africa. You can read the brief description of
how these forces can affect a business:
Bargaining Power of Suppliers: For PC-Based Open source networking business since
your software is open source and you do not sell any hardware, then your business does
not have a real supplier. So this option is not that applicable for you.
Bargaining Power of Buyers: As your customers in Africa are not that tech-savvy, they
might afraid of using an open source networking solution and this can affect your
business in return.
Threat of Substitutes: Currently there is not an open source networking provider in
African market, so a substitute right now is not a high possibility. But, you need to be
always ready to compete with big players.
Threat of New Potential Entrants: Vyatta [10] is the biggest competitor on open source
networking providers’ arena but they are not in the African market yet.

Industry Competitors: Internet and networking industry is facing with a high level
competition and the company must be ready to compete with any other possible
competitors from industry.
6. BUSINESS MODEL
A business model is a term used to describe a profit-producing system that has an
important degree of independence from the other systems within an enterprise. The
term is widely used for a broad range of informal and formal descriptions of the
purpose, offerings, strategies, infrastructure, organizational structures, trading
practices, and operational processes and policies. For example intended company can
provide these services for the customers and make money out of this business.

6.1 PROVIDING TRAINING
In this model, company introduces a product into a new market segment, and provides
training in order to guarantee a stable customer base. This will be better for people who
have the basic IT skills such as surfing the web, word processing, spreadsheet work and
simple database construction. Company can provide training themselves or outsource
training to a local agency to educate the user about installation, configuration,
maintenance and fixing bugs.
In this part you can show the relationship between all partners in this business model by
an example graph below.

6.2 CONSULTANCY SERVICES
The consultancy service gives more autonomy space for the end user. Comparing to the
previous business model, this model takes the requirement from the end user more.
The end user could ask for all kinds of service or support when necessary. These services
may include System Administration for companies and any other organizations that may
need services of a Systems Administrator but cannot afford a full time employee.
Network design and implementation services for those who need such but they luck the
competence to design and build their own networks.

6.3 TECHNICAL SUPPORT
Technical support whereby the company provides help to people who might need help
for installations, maintenance and software upgrades. Since the product is a new
product in the market where the customers know little about it, the technical support
should be well established into multiple areas and give feedback from customer to
company rapidly in order to update the product in an expecting way for customers. The
following figure shows the relationship between all sides in this business model.

7. COMPANY MANAGEMENT
For a start up, may be very few entrepreneurial people will be enough at the beginning.
But when company starts to search for investments, it is generally a must to have a
good management team. “Get the right people on the bus” motto describes it very well.
For the later stages we suggest that; the company management team must consist of
individuals with great experience and strong passion for doing business in Africa. Each
member of the management team plays an important role in certain department since
the organization is well structured. All the team members should have substantial
knowledge and experience, strong mind of teamwork, commitment of leading the
project to success.
In the organization structure, there are several departments taking care of different
operations. Please have a look at to Appendix E for an example of Management Team
and Organization Structure.

8. OPERATION STRATEGIES

In this section, operation strategies including marketing, partnership, sales and competition strategy will be introduced.
8.1 MARKETING STRATEGIES
8.1.1 ADVERTISEMENT
To make the product/service and company known by the target markets and to build a
strong customer base, company must plan to advertise in several places by different
ways. Some possible places listed below but depending on the country and city, these
places can be changed.
Universities and Research Institutes
The main effort of advertisement must be carried out in the universities and research
institutes, especially those which are members of National Research Education
Networks in the specific country. Because they are not only the customers, but also the
source where the engineers come and ICT technologies are spread. The ways that
company can advertise the product and services can include sending brochures and
postings in the notice boards in the universities and institutes. Additionally, some
advertisement or short description can be put on their websites if it is possible. Having a
close relations ship with academic institutions is very crucial for the proposed company.
Publications
Advertisements in technical publications can target more people and affect widely.
However, the cost may be higher. So in the beginning, it is suitable to just choose one or
two ICT publications, like magazines and newspapers, to do some business
advertisements. Furthermore, a press release can be published in local newspapers.
Website Portal
Website Portals that people often visit for news or non-professional information are
considered when company wants to go further to influence the non-stakeholders. It
would be carried out after the above two advertising.

Exhibitions
Proposed company should also organize exhibitions and events where certain people
(technical and sales people) could demonstrate and explain the functionalities of
Bifrost/Osian and the services that company will provide. Some accessories (pen, mugs,
t-shirts, notepads, calendars) with the company name or Bifrost logo on them can also
be given out for free during exhibitions. It would be mainly carried out in the universities
and institutions, and maybe also in some public IT exhibitions.

8.1.2 PROMOTION
Special offers for Academic Institutions
In the early stage of the business, company should give some special offers to early
adaptors and innovators segment customers5 in order to make them easier accept the
solution and build the relationship. The price could be discounted 20% to 40% off the
original price. Additionally the basic product training (how to use router) should be free
in order to let the first customers know how to use Bifrost/Osian routing solution. These
special offers must be available only in the early stage of the business, just for
promotion. In addition to these, making first customers happy is very important to gain
market share and increase customer loyalty.

Workshops/Seminars
Workshops/Seminars focusing on the different aspects would be organized in different
ways for different groups of audiences. The workshops focusing on the technical issues
would be held in the universities for students or professional people to know about the
product, interest them and also get some feedback from them. The seminars which are
more business-oriented will be organized for distributors and other partners, while
some promoting workshops of either business or technology aspect are for customers
out of universities or institutes.

8.2 PARTNERSHIP
Partnerships should be carefully considered in this business, several kinds of
partnerships have to be built.
Software/Solution development partners
This kind of partners includes KTH, where there are some projects related to
Bifrost/Osian and from which the Osian solution came. And it also includes Bifrost
people, who developed and continue to improve Bifrost router. They can give company
the technical support and cooperation. The way of building partnerships could be
partner ownership, contract, or project-based. But, again having a close relationship and
supporting back the open source community is very important. If the company can
support the open source community, this can help to increase number of developer
community members and customer satisfaction.

Training partners
At the beginning, because of being a start-up and lack of resources, company can not do
all training activities by their selves, so after the business takes off, the company must
start looking for some training agencies as partners. They could be universities, or other
profit training organizations.
Supplier
In order to make the value chain stable and cost-effective, some stable relationship with
hardware suppliers should be considered. The PCs which are used in the Bifrost/Osian
will be a little different then a normal PC. Lenovo [11] and Dell [12] can be the main
considered suppliers.
Networking solution/service providers
For distributing the routers or its complementary products, it would be very helpful to
put Bifrost/Osian router in networking solutions provided by other companies. So far
there are very few local networking solutions providers in most of the African countries.
Because of the benefits that would come for all parties, partnership can be very
effective for the proposed company and local networking solutions providers. Cheaper
or more cost-effective routers would bring benefits for the distributors and resellers.

8.3 SALES STRATEGIES
8.3.1 PRICING
For routers, the price for direct customers, the retail price would mainly depend on the
configuration of PC, and it would be at least 25% higher than the cost of PC. The price
for distributors or partners would be a bit lower (about 10 to 20%) than the price for
retail. Company makes profit by providing customized hardware (PC) on which the
router software (Bifrost/Osian) is installed. Considering the current PC price [13] and
customizing PC for routers, the hardware cost of the Bifrost router (including PC and
Network adopters) can be controlled to be around $400 for low end, $800 for the
middle, and $2000 for the high.

As for the services, company would mainly charge technical support, training and
consultancy. The documentation and some training about the products would be free as
a part of customer service. After a period of development of this business, company
would give the certification for network engineers. Except some free training about the
product as customer service, there are still charging trainings for certification, which
also could be carried out within the cooperation with training partners.
The price is certainly far lower than the big players, like Cisco [4] and Huawei [5], and it
should also be lower than Vyatta [10]. The services, except consultancy, are categorized
into three levels, basic, professional and advanced, as shown in Table 2, where the price
is about 30% lower than Vyatta [10] whose price is 50% to 75% lower than Cisco [4]. The
price is made through considering the operation cost, the selling cost, the industrial
environment, and the spending power of the target market. One reason of the price
difference between proposed company and Vyatta is that proposed company is going to
run this business mostly in African countries instead of developed countries, and the
other reason is that Vyatta’s price is mainly for the developed markets. The professional/consulting services would be charged on hourly rate. The price would
be $30~50 per hour, far lower than Vyatta ($200~$220) [10], because the market is in
Africa, which is poor and where the salaries for engineers are low, approximately
$10,000-$12,0006 7. The price could also be project dependent in which case a customer
would be charged a lump sum.
As for the price of class training and certification, the price for training lasting for 2
weeks will be $150 and the price for certification examination will be $50. There will be
some special offers for customers who buy a certain number of products, or pay a
certain number of money for the product or service.

8.3.2 PRE-SALE SERVICE AND POST-SALE SERVICE
Pre-sale service of the business includes free consulting about products and solutions,
online manuals or brochures about products, demonstration, etc. Post-sale service
includes installation and debugging, maintenance and upgrade, technical support, information service, training, etc. As described above, some of the services must be free, especially at the start.

8.4 COMPETITION STRATEGIES
This business adopts the competitive strategies of cost leadership, differentiation and
specific regions [14]. The cost of the product and solutions are controlled to be low and
effective, by using the open source PC-based router and solution. The price must and
could be far lower than the proprietary commercial products, like Cisco and Huawei, and
also competitive compared to Vyatta, whose product is also more cost-effective than
others. The specific regions of the market are African countries. Additionally, the
solution also has differentiations, because of its attribute of “open”, which means that it
supports customers to do further development on the product, and this helps
customers lower their cost of running their network meanwhile the performance and
quality can be ensured.
The business cost can be reduced by several ways. Bifrost is open source, and is free,
and the company just needs to do some further development about the additional or
advanced features and some customization on that. This job can get support from the
open community, and the cost can also be lowered by cooperating with the universities.
As for the hardware, it saves the cost by using PC and PC network adopters within
required configurations. It would be better if the company has a long-term relationship
with one or two specific PC providers, and Lenovo [11] can be a good choice, who is
doing low-cost PC business in Africa. Additionally, the low-cost human resource in the
African universities could be also helpful to control the cost.
The competitive strategy of differentiations used by this business is provided and
supported by the feature of flexibility and customizability brought by the attribute
“open source” and “PC (Linux) based”. In order to implement this strategy, much
documentation and technical support about the customization and the development of
other features on the Bifrost/Osian, should be provided for customers. There is some
support that could be achieved from the open-source Linux community. The company
should keep close to the exterior open source communities and support open source
developers and community members.

9. FINANCIALS
In this part, please calculate your 3 years expenses and incomes. This part should not
have to be very detailed like “a new coffee machine to office” or “printer toner
expenses”.
Also, for the investors it is really important to see “how you are going to spend the
money”. Try to briefly explain why you need the money and how do you plan to use it.
It’s not necessary to get into details, do not try to explain all the things in detail. In
addition to these, if you calculate that you need $12,475.79 and even if it is the very
exact sum of money that you need, do not ask for a loan of such a number. Keep in mind
the “un-known expenses” and make it about $20,000. Keep in mind that most of the
investors want to see “miscellaneous” part in your expense calculations. This will make
your financial plans more realistic.
For more detailed explanation of financial terms please look at to Appendix B

10. CHALLENGES AND RISKS
Regarding doing business around Open Source in Africa, there are several risks for
entrepreneurs to think about. The existing risks are the current ICT infrastructure in
Africa, scarce resources by this, financial and human resources, ICT policy, Open Source
adoption, existing and potential competitors and the risks from the Bifrost development
team. In this part you can find some of the possible risks and suggested solutions.

10.1 ICT INFRASTRUCTURE
The lack of ICT infrastructure in African countries has contributed to the level of poverty
with in the continent. The ICT infrastructure here includes the foundation of
telecommunication cable, the structure of network link, the connectivity coverage,
hardware and software components and QoS (Quality of Service) of the Internet.
Due to the lack of equipment and the low Internet coverage, the Internet user
penetration (percentage of population) in whole continent is 5.3%, which is 24.7% for
the rest of the world. [25] This is both a challenge and an opportunity. The challenge is
that the rate of development of the market is not as fast as it is expected, and in order
to handle this, company can go to several target markets, like NRENs and ISPs to
maximize the utilization of the company resource.

10.2 SCARCE RESOURCES
The other risk is the scarcity of resources. The resources basically include financial and
human resources. As we all know, the economic situation in Africa cannot sustain
speedy ICT development but at the same time we know that ICT use can rapidly change
this situation. Private companies might also not have the financial muscles to carry out
the necessary activities. Human resource limitation is also a risk. There might not be
enough well-educated researchers, developers and technicians to fully support the
requirements directed by business decisions. The low computer literacy and low
number of trained people poses a threat unless dealt with very soon. In order to solve
this issue, company can try to employ engineers who are studying abroad and want to
go back to those African countries.
10.3 ICT POLICY
The ICT Policy within countries in Africa is something that needs to be taken care and
followed. ICT Policies may vary according to the overall vision and mission of the
country. The ICT policy affects business decision and business model by different ways.
Entrepreneurs should pay attentions to the change of ICT policies.

10.4 OPEN SOURCE ADOPTION
In the past few years, a growing number of countries in Africa started to take Open
Source as a serious alternative. [26] We can say that the Open Source adoption in Africa
is still in emerging phase. Many are skeptical about Open Source. It will be affected by
different initiatives at multiple levels: government, organizations including ISP, and
other individuals including companies. For example, the NRENs which are one of the
target customers in this business might not accept the product. What company could do
is to organize seminars to raise those skeptical customers’ awareness. However, we
believe that there will be more and more people who will put effort on the Open Source
adoption and contribute on the development of Open Source in near future.
10.5 EXISTING AND POTENTIAL COMPETITORS
In this market, the existing competitor is Cisco that provides routing solutions in Africa
already. If Cisco lower the price when an open source networking provider company
comes into the market, the lower price and higher reputation from Cisco must be a big
risk for entrepreneurs, moreover the customers there are still skeptical which makes the
situation even worse. What company could do is to convince the first target a specific
customer segment, for example only NRENs at the beginning and show market the
benefits of Open Source.
The potential competitors are the companies which provide similar products and might
target the same market area in the future, for instance Vyatta and Huawei. They will
cause similar risks if they decide to rush into the same particular market in Africa. What
company can do is that, to make offers to the customers such as providing training for
free if they buy a certain number of routers. Another important thing is to build strong
local presence to seize the market initiative and have close relationship with potential
customers.

10.6 RISKS FROM THE BIFROST DEVELOPMENT TEAM
Since the Bifrost development team is very small, company might meet the failure to
enhance the product properly. Moreover, the Bifrost team might decide to stop
developing because of limitation of the team. In this case, what company could do is to
build a Bifrost community around the solution from very beginning. The community
could attract some technical developers to contribute on the development of the
product, or even take over Bifrost if core developer team stops developing.

APPENDIX B
This part is a literature review from several sources. This Appendix has been added to
business plan template to help entrepreneurs to easily calculate their economic
situation. These references have been used for this section [15] [16] [17] [18].
Sales and Revenue
Revenue is all the income you receive from selling your products or services as well as
from other sources such as interest income and sales of assets.
Gross Sales
Your sales figure is the income you receive from selling your product or service. Gross
sales include, sales minus any returns. It doesn’t include interest or income from sales of
assets.
Interest and Dividends
Most businesses have a little reserve fund they keep in an interest-earning bank or
money market account. Income from this fund, as well as from any other interestearning
or dividend-paying securities they own, shows up on the income statement just
below the sales figure.
Other Income
Other income includes sales of unused or obsolete equipment or any income-generating
activity that’s not part of your main business.
Costs
Costs come in all varieties. You’ll record variable costs, such as the cost of goods sold, as
well as fixed costs—rent, insurance, maintenance and so forth. You’ll also record costs
that are a little trickier, like depreciation.
Cost of Goods Sold
Cost of goods sold, or COGS, includes expenses associated directly with generating the
product or service you’re selling. If you buy computer components and assemble them,
your COGS will include the price of the chips, disk drives and other parts, as well as the
wages of the assembly workers. You’ll also include supervisor salaries and utilities for
your factory. If you’re a solo professional service provider, on the other hand, your
COGS may amount to little more than your salary.

Sales, General and Administrative Costs
You’ll have some expenses that aren’t closely tied to sales volume, including staff
salaries, rent, insurance and the like. These are split out from the sales-sensitive COGS
figure and included on a separate line.
Depreciation
Depreciation is one of the most baffling pieces of accounting. It’s a paper loss, a way of
subtracting over time the cost of a piece of equipment or a building that lasts many
years even though it may get paid for immediately. Depreciation isn’t an expense that
entails spending money. Yet it’s a real expense in an accounting sense, and most income
statements will have an entry for depreciation coming off the top of pretax earnings.
If you have capital items that you are depreciating, such as an office in your home or a
large piece of machinery, your accountant will be able to set up a schedule for
depreciation. Each year, you’ll take a portion of the purchase price of that item off your
earnings statement. It should be noted that while depreciation hurts profits, it can
reduce future taxes.
Interest
Paying the interest on loans is another expense that gets a line all to itself. It comes out
of earnings just before taxes are subtracted. Note that this line doesn’t include
payments against principal. Because these payments result in a reduction of liabilities.
Taxes
The best thing about taxes is that they’re figured last, and they’re based on the profits
that are left after every other thing has been taken out. Tax rates vary widely according
to where your company is located, how and whether state and local taxes are figured,
and your special tax situation. The smartest way to figure taxes is to have your
accountant do a projection of your tax rate based on past years’ filings and this year’s
projected results. Then multiply that percentage times your earnings before tax. That
gives you your net income—the much talked-about bottom line—after you take out
taxes.
Balance Sheet
If the income sheet shows what you’re earning, the balance sheet shows what you’re
worth. A balance sheet can help an investor see that a company owns valuable assets
that don’t show up on the income statement, or that it may be profitable but is heavily
in debt. It adds up everything your business owns, subtracts everything the business
owes and shows the difference as the net worth of the business. Actually, accountants
put it differently, and of course use different names. The things you own are called

assets. The things you owe on are called liabilities. And net worth is referred to as
equity.
The three elements are governed by a simple equation:
Liabilities + Equity = Total Assets
It can also be useful to look at it another way:
Assets – Liabilities = Net Worth
Both formulas mean the same thing.
A balance sheet shows your condition on a given date (usually the end of your fiscal
year). Sometimes balance sheets are compared. That is, next to the figures for the end
of the most recent year, you place the entries for the end of the prior period. This gives
you a snapshot of how and in what ways your financial position has changed.
A balance sheet also places a value on the owner’s equity in the business. When you
subtract liabilities from assets, what’s left is the value of the equity owned by you and
any partners. Tracking changes in this number will tell you whether you’re getting richer
or poorer.
Liabilities
Liabilities are the debts your business owes. They come in two classes: short term and
long term. Short-term or current liabilities are any debt that will be paid off within 12
months. This includes accounts payable you owe suppliers, short-term bank loans
(shown as notes payable) and accrued liabilities you have built up for such things as
wages, taxes and interest. Any debt that you won’t pay off in a year is long-term.
Mortgages and bank loans with more than a one-year term are placed in this class.
Break-Even Point
One of the most important calculations you can make is figuring out your break-even
point. This is the point at which revenues equal costs. Knowing your break-even is
important because when your sales exceed this point, they’ll begin to produce profits.
When your sales are under this point, you’re still losing money. This information is
handy for all kinds of things, from deciding how to price your product or service to
determining whether a new marketing campaign is worth the investment. The process
of figuring your break-even is called break-even analysis. Once you get comfortable with
working break-even figures in a simple fashion, you can get more complicated. For
example, you may want to figure break-even points for individual products and services.
Perform break-even analyses regularly, especially as circumstances change. Hiring more
people, changing your product mix or becoming more efficient all change your breakeven
point.

CSD Course, Fall 2008. Open Case Team Thanks. KTH, Stockholm.